Schmeelk: Knicks Could Be in Favorable Position if Salary Cap Falls

There’s really no way to know whether or how the NBA is going to finish the current season, and how COVID-19 will impact the 2020-2021 season. We just don’t know what the details are going to look like, many of which will be out of the NBA’s control. The virus, any medical breakthroughs regarding it, and relevant government policy is going to dictate a lot of what happens.

One thing we do know? NBA revenue is going to decrease. We don’t know by how much, nor how it will exactly impact the salary cap. The projected salary cap numbers for next season was $115 million with the luxury tax threshold landing at $139 million. With the NBA losing a lot of money from the cancellation of 15-20 regular-season games for each franchise, plus whatever revenue loss occurs from the postseason, total BRI (baseketball related income), is going to drop precipitously.

Both the salary cap and the luxury tax (and subsequently the value of a max contract) are calculated as a percentage of total BRI. According to former General Manager Bobby Marks, now an analyst for ESPN, there are some teams that believe the total cap drop-off could be anywhere from $25-30 million, putting salary cap between $85-90 million and the luxury tax between $110-115 million. Any steep drop in the salary cap would be a benefit to the Knicks, who could take advantage of a unique NBA economy.

If the Knicks do not choose to bring back Bobby Portis, Wayne Ellington, Taj Gibson and Elfrid Payton, Mo Harkless, or Allonzo Trier they would have approximately $58 million of payroll on their books, which includes anticipated salaries for their draft picks. Then you have to add the $6.4 million of dead money owed to Joakim Noah (from their wrong-headed decision to stretch his contract prior to the 2018-2019 season) and the $3 million of dead money owed to Gibson, Ellington and Payton for not picking up the second year of their contracts. Add in the cap holds for empty roster spots, Damyean Dotson’s cap hold, and the Knicks cap number would stand at about $70 million. If the Knicks needed it, they could also choose to not pick up Reggie Bullock’s contract and save another $3 million in cap space.

If the salary cap dropped as much as the BRI decrease dictated, all the way down to $90 million or less, the Knicks could be in an advantageous position as one of only three teams (the Pistons and Hawks being the other two) under the salary cap. With thanks to Bobby Marks and our friends at Knicks film school who already explored some of these scenarios, this is how the Knicks could take advantage of the new NBA economics.

The assumptions in all these scenarios is that James Dolan is not apprehensive about taking on additional salary in these uncertain times. It has not been an issue for him in the past, but it’s a new world and assuming anything could be a big mistake.

1.Scenario 1 – The Cap Drops as BRI dictates with no addition rules

With team revenues in the can, and many teams now falling over the luxury tax threshold, NBA teams looking out for their own bottom lines would be trying to shed salary any way they can to save themselves from onerous luxury tax payments. With the threshold nearly as low as the league’s previous projected salary cap, $110-115 million, most teams would face this challenge. Those teams could look to move bad contracts and pay teams like the Knicks with cap space, draft picks or cheap young players with a lot of room to improve to take on bad salary. Draft picks might also be able to be purchased much more frequently in this scenario. This could increase the number of the Knicks future assets and accelerate their rebuild.

Other owners might be so strapped for cash, they might be willing to move some of their star players that they would otherwise require a king’s ransom for in any trade. The Knicks could find an established star at a reduced price only because of his salary and the financial situation of his team. Both of these scenarios assume the Knicks are able to take these players into their cap space, and not be forced to send players back to fulfill salary matching rules.

2.Scenario 2 – The NBA Freezes the Cap at its Current Levels of a $109 million salary cap, and a $132 million luxury tax

Fewer teams would be in luxury tax peril in this scenario but there would still be enough that some would want to shed salary due to plummeting revenues. There would be improved markets to acquire expensive players of different value as we discussed in the first scenario, though the scenarios with star players would be less likely to occur.

The other factor in this scenario is the 2020 free agent market. In what is already weak market, few teams would likely be willing to invest heavily in any players long term with so much financial uncertainty. Even though the cap and luxury tax didn’t drop as much in 2020, it is still likely to drop in future seasons pending the country’s ability to manage COVID-19.

If the Knicks wanted to sign a player like Fred Van Vleet, they would probably have little competition and could sign him to a reasonable longer term deal, or a short term deal with a higher yearly pay-off. Van Vleet is a good player that does many things well and would seriously upgrade the Knicks point guard position.

The Knicks, along with the other teams with cap space, could find real value in what is not a highly anticipated free agency period simply because of the scarcity of demand. Supply might also be low, however, as most players would be likely to pick up whatever player option are in their contracts. The Knicks would also be wise, however, to maintain their cap flexibility for a much more robust 2021 free agent class.

3.Scenario 3 – The Cap and Tax drop but the NBA Re-introduces An Amnesty Clause.

One other scenario floating around is the potential re-introduction of a one-time amnesty clause for a single season to deal with a steep luxury tax and salary cap decrease. Also included in the last CBA, an amnesty clause allows teams to wipe one player off their salary cap ledger, even though they still need to pay the player their salary.

Teams then have a bidding process for any player’s amnestied, and those that put in the highest bid gets to claim that player at the bidding salary. With so few teams having money and cap space, the bidding would not likely be very fierce. Players like Chris Paul, John Wall, Blake Griffin and others could be had on the cheap on much less risky and onerous contracts they are currently playing under.

In this scenario, the Knicks would also have the option to amnesty Julius Randle, their only high-salary contract on the books beyond this season, and open up even more cap space. They would not be able to use the provision on a player acquired later if the league uses the same amnesty rules they did previously. If the Knicks could wipe Randle’s near $20 million salary from the books they could have even more flexibility to take advantage of the league’s financial situation.

With the Knicks past regimes, I would find it unlikely that they would get creative enough to fully take advantage of such a unique situation. The addition of Brock Aller brings optimism that could change. The Knicks have been foundering for years trying to build a sustainable winner, and uncertain economic times might finally allow their financial advantage to be what helps them get back to prominence.

You can find me on twitter @Schmeelk for everything Knicks, Giants and the world of sports.